Making the UK an enterprise nation

On Monday September 30th I delivered a speech at the global launch of Entrepreneur Country, an initiative that brings together entrepreneurs from all over the planet, at the invitation of Julie Meyer MBE.

In my speech I renewed my support for a ‘New Deal’ for new businesses. No tax, no forms, no regulation until your business has been going for two years or your turnover reaches £250k. Britain must become the greatest place on earth to start a new business.

Indeed, I believe that the only way we can shape our economy for a sustainable future is by fundamentally rethinking how we do Government. Asking not what the state can do to back entrepreneurs, but how it can become more entrepreneurial.

The financial crisis wasn't just a blip on the radar. It exposed the deep fault-lines in our economy. Health costs, a sclerotic eurozone as our biggest export market and a welfare system that has trapped people in poverty for too long are just some of the causes of our structural deficit.

To survive, we must be radical. Alongside a ‘New Deal’, that means engaging with emerging markets, using technology to transform public services and breaking monopolies in banking, energy and rail.

A bright future can await us. But we must be bold enough to reach for it.

Why we don’t just need Governments for enterprise, but more enterprising Governments.

Introduction

Thank you very much. It really is a great privilege to be here today. Thank you, Julie, for the invitation and for the important and inspirational work you are doing with Entrepreneur Country, and today with the global launch.

After a fifteen year career in start-up venture capital, I often feel in Parliament like an apostle of enterprise trying to convert the Romans, the roar of the lions never far behind!

But today is a precious chance to rejoin the entrepreneurial community I came to Parliament from - and for - and to share with you my message and mission about the urgency of our embracing what I call The Innovation Economy - and the boldness modern Governments need to show in unlocking it. I believe:

That the scale of the structural economic crisis facing ageing Western European economies like Britain’s is far deeper and more challenging than the Westminster village can handle

That the scale of the crisis is the opportunity for our generation to confront it and deal with it – embracing a more entrepreneurial mindset in both treating crisis as opportunity, AND in being bold and optimistic that by releasing the spirit of enterprise and the power of technology we can build a new model of growth out of the ashes of the boom and bust

That to do that Government will need to learn some key virtues from entrepreneurs – especially the need to be fundamentally more global in our outlook, bolder and more honest in our assessment of the problem, more focused and realistic in our aims, and more enterprising in everything we do.

You know they say that there are two sorts of politicians: those who can talk nonsense on any subject under the sun, and those who don’t need a subject.

As the UK political parties gather for the annual series of Conferences, I believe this gathering of global entrepreneurs is the most important Conference this autumn of all, and I hope that by being here to salute you and call for the bold Programme for the ‘Innovation Economy’, I will be able to enlist and draw on your support in my call a fundamentally more enterprising spirit across the whole of Government.

I believe that if we seize the opportunity of this crisis we have the potential here in the UK to lay the foundations for a new cycle of growth based on

Unleashing enterprise and technological innovation to smash the bureaucracy and obstacles to innovation which lie at the heart of the productivity crisis in our public services

Using the crisis of an ageing society, rising healthcare costs, creaking infrastructure, analogue Government in a digital age to create new markets for insurgent new technologies and companies – making Britain a global crucible of innovation to export again to the world

And based on re-gearing our trade links with the fastest emerging markets around the world: helping the emerging economies go through in the next 30 years the cycle of development we pioneered over 300 – but in way which is more sustainable. Exporting our technology, innovation + leadership

In digital / IT

In ‘life sciences’….food medicine cleantech

In professional services…..not least venture financing…..

The entrepreneur in me is optimistic that despite the appalling structural crisis in the UK public finances, we can turn it around. Think like an entrepreneur and view UK plc as a company and the problem seems suddenly more like an opportunity.

Like so many ailing big corporate whose share price starts to sag as its model becomes increasingly unsustainable, and its customers start to drift to more innovative new entrants, UK plc has vast assets on its balance sheet. But we need to restructure the business to release the talents of our people, draw in investment, embrace new models, and become more fleet of foot.

But I believe we will only do this through

a much more radical embracing of the entrepreneurial spirit throughout Government and public sector – from top to bottom,

smashing open the all too often far too cosy cartels and monopolies which close off new markets – whether in banking, energy, telecoms, transport, or Government procurement

Bold reforms to support start-ups and the risk takers who drive the entrepreneurial company by putting their own money and careers on the line to build the innovations, companies, jobs and tax revenues we all rely on.

That’s why today I am using this speech to call for a landmark New Deal for New Business, with the aim of making Britain the best place on earth for entrepreneurs to come and start a new business.

So why do I believe the structural nature of the public finances crisis is an opportunity ? And could a more entrepreneurial public sector could help drive more sustainable + innovation-led growth?

Crisis is structural

In his book Boomerang, a merciless exposé of the financial crisis, Michael Lewis cites the example of Paige Meyer, the fire department chief for the bankrupt US city Vallejo in California.

Leading a fire department shrunken from 121 to 67, Mr Meyer was faced with a dilemma: how to respond to 13,000 calls a year with half the usual staff?

He started by going back to basics: devising new fitness regimes to prevent injury and looking at different methods of fighting big fires. ‘He began, in short,’ says Lewis, ‘to rethink firefighting.’

Following the financial crisis, sooner or later every politician ends up in the position of Paige Meyer. How to provide public services with fewer workers and less money? Not just tinkering round the edges, but forced to rethink the very business of Government.

Its easy to forget, as the UK economy starts to move from crisis to recovery and consumer confidence returns, the scale of the crisis we faced in 2010 – and still do:

one of the highest budget deficits in the developed world – a staggering 11% of GDP and the risk of rising interest rates triggering a massive housing market correction , gilt yields soaring, the economy tanking, debt to GDP ratio exploding...

An economy too highly leveraged and dependent on public spending, debt fuelled consumerism, and house price inflation.

A structural deficit driven by underlying cost inflation in health, welfare, pensions – and now debt interest, which means that whilst we impose difficult cuts to discretionary public expenditure, a black hole in our public finances continues to grow driven in no small part by an ageing society…for example driving ever higher costs in the NHS…putting huge pressure on Government’s ability to maintain a world class service.

And a welfare state no longer a safety net to catch us when we fall, but stopping many from ever rising in the first place, bankrupting us with good intentions.

A sclerotic eurozone as our biggest export market.

As ever when looking at a company, it’s worth looking at the books!.......

According to the Institute for Fiscal Studies:

social security spending alone is set to increase from 28% as a proportion of public spending in 2010-11 to 32% in 2017-18, even with the cuts underway.

In pensions, our current level of spending for 2012-13 is a 59% per cent increase from 1997.

Moreover, the IFS forecasts that, in nominal terms,by 2017-18

debt interest spending will be up by £20bn,

benefit spending up £20bn,

health spending up £15bn and

net public service pension spending up £5bn.

Even with the current spending reductions, we will only return spending to the same proportion of GDP as in the early 2000s.

Put simply: the consolidation of the last few years is plugging the leak and keeping us afloat. But the deep structural problems – the black hole at the heart of the public finances - remain.

To deal with it we need to ask ourselves how it is that whilst the private sector steadily delivers c3% productivity gains year on year for every pound spent, the public sector can only deliver more with more money.

It cant be because of the people. The vast majority of public sector employees are driven to public service, work long hours in very difficult roles, for little thanks, and do it not for huge personal gain but an honest job in pursuit of noble aims. As with every failing big company, we need to look at management, at the Board, at our strategy, at the structure of the business, and ask some difficult questions.

So lets do away with the stale and old fashioned dogma that has dogged UK policy making for too long: that the private and public sector are so fundamentally different that we shouldn't expect disciplines and virtues and aspirations we take for granted in the private sector to flourish in the public.

Of course we should. Why should public sector people have to suffer bad management, lack of autonomy, disconnection from customer feedback, and the lack of fulfilment that we all take for granted working in organizations that are competitive and thrive on success.

I'm not talking about ‘privatisation’ of public services – ‘selling off’ public services – I'm talking about the need to reform our public services – and our ambitions for them – to embrace a much more innovative and entrepreneurial culture in the use of scarce public funds.

We need the next James Dyson or Richard Branson to be as at home in the corridors of Whitehall as in the conference rooms of Canary Wharf.

And we will only do so by replacing an economy erected on the sand of Government spending to one built on the rock of innovation.

At the dawn of the 21st century I believe we need to build an ‘Innovation Economy’ in which we tackle the structural problems in our public sector through a much more profound embracing of technology and the spirit of enterprise, and a new spirit of partnership between the private and public sectors in which the two help each other.

With enlightened procurement and public service reform we can create new markets for innovation – helping make the UK a global testbed for new technologies – whether in healthcare, education, defence OR tax collection, HR and IT – across the board of Government – AND drive efficiencies in the public sector.

.....and realise the full potential of twenty-first century technologies to do for us what ship design and the invention of ships Chronometers did for the Elizabethans, and steam and rail for the Victorians.

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As you know in Entrepreneur Country, most of all what we need is a renaissance of the culture that supports risk - and reward.

Lets remember that every British economic golden age from Elizabeth to Victoria to Lady Thatcher has been built on the success of those who dared and dreamed, buccaneering entrepreneurs from Francis Drake to Richard Branson with the vision and the will to succeed, spurring national renewal and allowing a vibrant culture to take root and flourish around it.

Today its about unleashing the power of the technological revolutions in IT and Telecoms, Digital media, Genetics, data analytics, cleantech solutions in energy...finding the twenty-first century’s equivalent of electricity or the invention of the internet, a new space race for the defining technologies of our age.

Treating entrepreneurship no longer as extra-curricular, but at the heart of our education system and careers advice.

Thinking globally – we should aspire for every school leaver - whatever their background or education - to travel to and see the emerging world before they start work. We will never win in the Global Race without a global and entrepreneurial mindset.

And we will never do so if our elected representatives don’t embody that vision in everything we do:
Prizing innovation, not conformity.
Rewarding vision, not time served.
Backing new ideas, not settling for the tried and tested.
Encouraging fresh thinking, not just from within the Westminster bubble.

The truth is we don’t just need a Government for enterprise, but a more enterprising Government.

It is a vision that lies at the heart of the Prime Minister’s agenda:

Whether it is in NHS reform, reducing our deficit, transforming our education system or establishing trade links with some of the fastest and most dynamic emerging economies through our international aid programme...

...we are starting to lay the foundations of a sustainable model of economic growth.

George Osborne has performed the vital work of rescuing our economy, pulling it back from the precipice and now leading it boldly into recovery. It hasn't been easy, but it has been necessary.

By sticking to his guns, having the vision to expose the deficit amnesia of Labour’s boom and starting to make our economy fit for the twenty-first century, he is laying the foundations for a long term cycle of investment and prosperity.

And all entrepreneurs - from Tech City to the Cambridge biotech cluster - can be mightily glad that he has.

Last year the UK saw the creation of more start-up businesses than in any year since records began.

BUT – given the scale of the structural crisis in our public finances we need to make sure this is not the end, but the beginning.

The beginning of a long term Programme to create what I call a modern “Innovation Economy”.

How do we do that?

First, it means being global.

We need to turn our focus from the sclerotic Eurozone to emerging markets. The Western European nations are all grappling with the same structural weaknesses – and a currency and banking system weighed down in bad debts. We cannot afford to sit and wait for the Eurozone alone to drive growth. We have to go and trade with the faster emerging markets – the BRIC and next 11 – growing at a rate of 7% annually – that’s almost doubling every 10 years!!

But… even though the value of total UK exports to the BRICs rose by 42% between 2008 and 2011, they still made up only 7% of total UK exports in 2011, with China comprising just a measly 3%.

And, according to their projections, at our current pace exports to emerging markets won’t make up the majority of the UK total until 2047.

Trying to win the global race through the corridors of European politics is like trying to score a century at Lords with a seven-iron.

In the next fifty years, the BRICs and N11 economies will go through what the developed world has gone through in the 300 years since we led the Agricultural Revolution……

In my field of Life Sciences….for example……the emerging markets are driving vast new markets in the 3 markets of Food, Medicine and Energy. In food,we will have to double global food production with much less land, water and energy. In 30 years the exploding populations of these nations - who today need the basics of public health, nutrition and energy - will demand the modern biomedicines, Western foodstuffs and Cleantech that only their elites enjoy today.

These are vast markets for our science, technology and innovation and the new businesses that create them.

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Second, an Innovation Economy public sector enterprise: breaking the closed markets in public service procurement and practice to tackle the causes of the structural deficit and public sector productivity crisis.

Take for example the NHS.

With an ageing population driving rising healthcare costs, the nightmare scenario is all too easy to envisage…

Pressure on budgets driving increasing health rationing.

NHS patients falling behind other countries on health outcomes.

Investment in new technologies falling as the UK becomes an increasingly unattractive market.

The UK becoming again the ‘sick man’ of Europe.

The last Government doubled health spending and achieved a 10% output increase. That’s a 90% productivity gap.

By 2048, a century after the NHS was founded, the cradle-to-grave service enjoyed by the baby boomers could be little more than ancient history for those – our children - picking up the bill. The fleeting hope of universal healthcare undone in a lifetime by our failure to tackle the crisis of productivity.

It doesn’t have to be like this. The NHS is a global jewel in the crown. World renowned for its expertise and ethos. Its record of delivering healthcare per pound has, until recently, been exemplary. And we have three world-beating technological assets which the rest of the world would die for, waiting to be fully used:

The human genome map,

world beating superfast computing and informatics which have driven companies such as ARM from Cambridge start-ups to global corporations and, crucially,

the NHS’s unique fifty year data records on drugs and disease.

These are global assets of immense value with the potential to make the UK a global leader in modern biomedicine : pioneering the new generation of personalized diagnostics, targeted therapies and preventative treatments which are transforming healthcare.

A new Partnership between the NHS and our Life Science sector could see us deliver a massive win:win:

getting quicker access to modern medicines for UK patients

accelerating adoption of innovation in the NHS

reducing the cost of giving the wrong drugs to the wrong people

making the UK a global hub for life science investment

The NHS can either make or break us. Its our choice. The opportunities are now there: the question is: are we prepared to be bold and innovative enough to take them?

a globally competitive tax and regulatory regime to attract global entrepreneurs to the UK

rewarding innovation and risk

opening up new markets currently all too often closed off to new entrants…..

Take banking. We have here in London one of the world’s great financial centres in the City. But we are letting the irresponsible practices of the few hold back the many. We need much greater competition and transparency with a much easier regime to promote new entrants.

America has over 20,000 high street banks. We have less than 10. Banking has become too much of a cosy cartel for the few. We need a renaissance of smaller banks doing the old fashioned business of looking after our savings and lending sensibly to businesses to keep the local economy thriving.

In energy too, we need to allow innovative start-ups to challenge the big six. We need to trigger an insurgency of new technologies and new companies and new models of energy that reward efficiency and allow the market to function properly and lead us to the right mix of technologies. State-sponsored subsidy by Big Government of a small group of companies to deliver green technologies and targets set by politicians a decade ago hasn’t worked in the past and isn’t likely to now.

We need 1001 new insurgents willing to be the Davids to the corporate Goliaths to shake up the system.

In infrastructure, insurgent ideas are similarly needed. That’s why I've floated the idea in my own area of an East Anglian Rail Company, letting rail users and taxpayers of East Anglia have a stake. Give the private sector a real chance to lead and local people a say.

Look at IT procurement. Successive Governments have a woeful record of bungling IT procurement – costing billions on consultancy and lawyers which should be powering on the UK tech sector to global success.

Its time to recognise that Big Government needs Small Business and Entrepreneurs to come to its rescue.

To do that we need to make the UK the best place in the world to come and start a new business.

That’s why for the last three years I've been advocating a ‘New Deal for New Business’ start-ups in Britain and today am making this policy proposal:

If you’re starting or growing a small business, employing people and generating sales turnover: Government should get off your back.

Let’s offer businesses with say, a turnover a break:

No employers National Insurance – a jobs tax

No VAT - a value tax

No Regulations designed for Big Companies.

In my 15 years of start-up VC, I was always struck by how many 1st time entrepreneurs under-estimated their turnover, and spent vast amounts of time and stress and accountants fees worrying about complying with Government bureaucracy.

Get off their backs and let them grow and we’ll find that they hit the threshold for tax that much quicker, bigger and stronger.

Simple, clear and potentially revolutionary in its effect.

Letting entrepreneurs hatch an idea and give it wings.

Freeing them to live up to their name and undertake: create jobs, wealth and new opportunities.

To do, not to box-tick. To flourish, not flounder.

To help create the innovation economy we need.

Conclusion

Outlining all the attributes of an entrepreneurial renaissance is too great a task for twelve minutes. But I hope you will take this way: this crisis is an opportunity for innovators and entrepreneurs - and you have friends in Government.

There’s an old expression that ‘the past is a foreign country: they do things differently there’.

The truth is that we cannot allow the land of enterprise – Entrepreneur Country – to be a foreign country.

We need to do things differently Here! Now!

We need the UK Government and public sector to become Entrepreneur Country too.